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Mar 23
2009
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Alyson Miller is a CPA who provides specialized accounting and tax services solely to music and entertainment clients.
Taxes are usually the last thing on the agenda of the touring musician but as tax season approaches it’s a good time for you to get organized. There are a number of tax deductions that are unique to musicians and therefore handled incorrectly on the tax return or forgotten all together. Before we discuss what can potentially lower your taxes, let’s talk about income.
It’s a common misconception that if you don’t receive a 1099-MISC for something then you don’t have to report it. Income or compensation that you receive for anything - shows, session work, teaching, bartending or whatever it may be - must be reported, including cash, regardless of whether or not you get a 1099. If you’re in a band with several members, beware that club owners and promoters hate issuing individual 1099’s to each band member, so often times the band “leader” will receive the 1099 and report the entire amount on their Schedule C. The “leader” then has to issue 1099’s to each member of the band or any other person paid (sound, lighting, guest musicians) so that it can be taken as a deduction on the Schedule C. Don’t stick yourself with all of the income and forget the deduction.
Here’s a list of the most important items that can potentially lower your taxes.
Travel
Travel expenses are allowable deductions on you tax return. So, if you have a show in a location that is far enough away from home such that it is impossible or inconvenient to return home, you can deduct it. Deductible items include hotels, airfare, phone calls home, rehearsal hall rental, and anything else related to the performance. If stops are made along that way to other cities (for example to visit friends) then that portion of the trip and the related expenses are not deductible. Always keep receipts for every expense along with tour schedules and any other documentation that you may have.
Meals
Meals associated with overnight travel are also deductible at 50% of the expense. Other meal expenses incurred that are associated with the “business” of being a musician, say meeting a potential band mate for lunch to discuss the possibility of becoming a member of the band or meeting with your accountant, could also be 50% deductible. The discussion must primarily be about business. If keeping receipts is not something you’re very good at, consider using the IRS allowable deduction that varies by city. The IRS requires the who, what, where and why for these expenses. One suggestion is to keep business cards as part of your documentation.
Equipment
The purchase of equipment (generally anything with a cost of $500 or more) is depreciated over 5 years. What this means is that you can take one-fifth of the cost of the item each year for 5 years unless you dispose of the item. The IRS also allows you to take the full cost of the equipment in 1 year if you choose. This is called the Section 179 Deduction. The cost of cables, strings, and other small items less than $500 can be taken as a deduction in the year that it is purchased.
Vehicle Expenses
There two ways to calculate the deduction for your vehicle. The IRS allows you to use which ever one gives you the biggest deduction. One
method is to keep a log of your travel in a calendar, notebook, or some
type of log book and use the standard mileage deduction (48.5 cents per
mile in 2007). Record the mileage to and from shows, trips to purchase supplies or any other business related activity. The
other method is to keep actual receipts for gas, repairs and
maintenance, insurance, property taxes, and depreciation of the vehicle
as the deduction. Generally vehicles such as buses yield a bigger deduction when the actual expenses are used.
Home Office or Studio
If you have a room in your home that is exclusively used for your business whether it be for paying band expenses, rehearsing, or it’s set up as a studio, you might be able to take it as a deduction. Exclusive use is the key. It cannot be used for any other purpose but for your business. The corner of your living room with a desk does not qualify. If you can justify a space used exclusively for your business, you can take a percentage of the square footage for the business portion. The percentage is then applied to your rent, mortgage interest, utilities, etc.
Other
There are other deductions that when taken in moderation are allowed such as CDs, concert tickets, and music publications. Ordinarily, taxpayers cannot take these as deductions but as a musician you must keep up with the industry. Most of the time these are classified on the tax return as research. Wardrobe can also be deducted if it is exclusively used on stage.
This not meant to be a comprehensive list of deductions. The tax code changes all the time. Check the IRS tax code (www.irs.gov) or with a tax professional before you do anything.
One last important thing………
If you use an accountant or tax professional, it’s best to use someone who has other clients in the music industry. Unfortunately, there aren’t many of us around so interview your accountant and make sure they are at least interested in what you are talking about and willing to understand your “business” of being a musician. When choosing an accountant, one size does not fit all. It’s like choosing a doctor. If you had a pain in your head you wouldn’t go to a podiatrist.
